巴黎银行-新兴市场-外汇策略-新兴市场：是否存在最优的外汇干预策略？答案是否定的-20190430-11页_667kb

EM: Is There an Optimal FX Intervention Strategy? Summary

Core Content

This document analyzes the effectiveness and implications of foreign exchange (FX) intervention strategies in emerging markets (EMs), focusing on the lack of a dominant or universally optimal approach. It presents a formal framework to evaluate the efficiency of FX interventions, considering the interplay between different transmission channels, the nature of economic shocks, and the degree of capital account openness.

Main Points

1. FX Intervention Overview

• FX intervention is a tool used by central banks in EMs to manage exchange rates, especially in flexible regimes.
• Central banks may intervene for several reasons:
  • To provide FX liquidity and prevent market dysfunction.
  • To accumulate foreign exchange reserves.
  • To supply FX to the market.
  • To stabilize the exchange rate and prevent secondary inflationary effects.
  • To correct misalignments if the exchange rate is overvalued or undervalued.

2. Transmission Channels of FX Intervention

Three main transmission channels are identified:

• Portfolio-balance channel: Relevant in economies with closed financial markets, where central bank interventions can influence the reallocation of financial assets by market participants.
• Signalling channel: Relies on the credibility and transparency of central banks. However, most interventions are not disclosed, and the effectiveness of this channel is questionable.
• Order-flow channel: Based on the central bank’s superior information and ability to monitor market activity, which can be used to influence FX rates. However, this channel requires large interventions relative to market turnover to be effective.

3. Rules-Based vs. Discretionary Intervention

• Rules-based intervention may be useful in the short term under specific circumstances, but over time, many central banks have moved away from such rigid strategies.
• Discretionary intervention is often more effective, but the document does not find evidence of a dominant policy.
• The effectiveness of intervention depends on the nature of the shock:
  • Temporary shocks may justify intervention to prevent unwarranted exchange rate fluctuations, provided they do not affect macro fundamentals.
  • Permanent shocks (e.g., changes in monetary conditions or terms of trade) may alter market expectations and FX rates, and should not be offset by intervention unless they cause disruptive overshooting.

4. Empirical Findings

• The document highlights the mistake made by the Argentine Central Bank (BCRA) in 2018, where it intervened to stabilize the ARS despite the pressure being driven by a permanent shift in risk pricing, not temporary shocks.
• Targeting lower FX rate volatility reduces speculative risk but may increase the volatility of international reserves and intervention costs.
• Intervention costs are particularly high when FX movements are driven by interest rate shocks due to the positive correlation between reserves and carrying costs.

5. Analytical Framework

• A formal model is presented to evaluate the efficiency of FX intervention using an equilibrium exchange rate equation:
  $$
  C A _ {t} + \Delta B _ {t} + \Delta F R t = 0
  $$
• The equilibrium exchange rate is modeled as:
  $$
  e _ {t} = a _ {1} \varepsilon_ {t} + a _ {2} \varepsilon_ {t - 1} + a _ {3} \delta_ {t} + a _ {4} \delta_ {t - 1} + a _ {5} e _ {t - 1}
  $$
• The model also calculates the hypothetical dynamics of key variables such as FX rate volatility, current account variability, speculation activity, and international reserve costs.

6. Conclusion

• There is no dominant FX intervention strategy.
• The choice of intervention depends on the economic context, the nature of shocks, and the capital account openness.
• The portfolio-balance channel is more effective in closed economies, while the signalling channel is less effective due to lack of transparency.
• Discretion is necessary for central banks to adapt to changing market conditions and avoid speculative pressures.
• Rules-based intervention may be useful in the short term but is generally not optimal in the long run.

Key Information

• Capital account openness and exchange rate overvaluation are critical factors in determining the effectiveness of FX intervention.
• Temporary shocks can be addressed through intervention, while permanent shocks should not be offset unless they cause disruptive overshooting.
• The costs of intervention are especially high when FX movements are driven by interest rate differentials.
• The BCRA’s 2018 intervention is cited as an example of a poorly timed response to a perceived permanent shock.
• The analytical model includes formulas to assess the impact of different intervention strategies on various economic indicators, including exchange rate volatility, reserves, and speculative activity.

Figures and Tables

• Figures 1-5 illustrate the hypothetical dynamics of FX intervention, showing its impact on volatility, reserves, and speculation.
• A table outlines key variables used in the analysis, including:
  • Speculators’ sensitivity to take a position (α)
  • Risk aversion of speculators (θ)
  • Variance of speculator profits (V)
  • Number of speculators (N)
  • Strength of intervention (Φ, φ)
  • Sensitivity of the current account to the exchange rate (S)
  • FX and interest rate shock persistence (ρε, ρδ)
  • Exchange rate (et), interest rate differential (δ), random shock term (ε), etc.

Disclaimer

• This document is non-independent research and is intended for Relevant Persons as defined under MiFID II.
• It is not investment research and should not be relied upon as such.
• It may contain hypothetical or back-tested performance data, which is not indicative of future results.
• No guarantees are made regarding the accuracy, completeness, or reliability of the information or models.
• The document may contain conflicts of interest, and BNPP may engage in transactions inconsistent with its views.